October 17, 2024 (Globalinvestorideas.com Newswire) Globalinvestorideas.com, a go-to platform for big investing ideas releases market commentary from Quasar Elizundia, expert research strategist at Pepperstone.
“The European Central Bank (ECB) made a unanimous decision at its October 2024 meeting to cut interest rates by 25 basis points, bringing the deposit facility rate to 3.25%. This move was expected by the markets and is part of a cycle of adjustments aimed at continuing to control inflation, which in September dropped to 1.7%, below the 2% target for the first time in over three years.
This decision also reflects the ECB’s intent to maintain a restrictive monetary policy as inflationary pressures ease and the risks of an economic slowdown become more pronounced. Although inflation is on track according to the ECB, economic growth is now showing signs of weakness, raising concerns about the Eurozone’s ability to avoid a recession. However, the ECB does not foresee a recession, instead expecting a “soft landing” for the European economy.
In this context, the euro has been performing poorly against the U.S. dollar, ranking as one of the worst-performing currencies of the day. It is worth noting that the EUR/USD has fallen from 1.12 at the end of September to around 1.08, representing a more than 3% loss in value against the dollar. Part of this euro weakness can be explained by the adjustment in expectations that the U.S. Federal Reserve will be less aggressive with its rate cuts for the remainder of 2024.
Despite the current pressure on the euro, the ECB is expected to continue with its normalization policy during the upcoming meetings in December and January. Additionally, the consensus at the moment points to further rate cuts in the first half of 2025, aligned with the goal of bringing rates lower to ensure economic stability in the region. According to the ECB, upcoming decisions will continue to depend on macroeconomic data, which adds a degree of uncertainty regarding the exact course of monetary policy in the coming months.
This scenario presents a series of challenges for the Eurozone, as it faces a dilemma between maintaining inflation control and mitigating the risks of slower economic growth.”
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